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Los Angeles Mayor Antonio Villaraigosa says the city will be forced to lay off thousands of workers unless employees agree to cutbacks in pay and benefits. Los Angeles faces plummeting tax revenues and a projected $530 million budget deficit for the fiscal year that starts July 1st. KPCC's Frank Stoltze has more.

Frank Stoltze: Villaraigosa floated three ideas – that city employees work for free one hour a week, that they forgo all pay raises, and that they contribute 2 percent more of their paycheck to their retirement benefits. Right now, most pay 6 percent. Otherwise, the mayor said, he'll be forced to propose laying off as many as 2,800 city employees.

Mayor Antonio Villaraigosa: I think we need to have a conversation in the yards, in the police stations, in the fire stations, in the offices that say "Look, how do we avoid layoffs of this magnitude, how do we save jobs at a time when the unemployment rate in the city of Los Angeles is at 12 percent and growing?"

Stoltze: The mayor indicated he's already started the process of laying off 400 city workers. Villaraigosa said he sent out a videotaped message to the city's 40,000 employees. In it, the former union organizer said he emphasized that his goal was to save city jobs by spreading the pain.

Villaraigosa: Shared responsibility and shared sacrifice. It's a new concept. People, frankly, are initially going to be reticent.

Stoltze: The mayor appeared to be right. Bob Schoonover of the Service Employees International Union represents city mechanics, gardeners, and garbage collectors.

Bob Schoonover: We are always willing to meet and confer when the city is in dire straits as it is now.

Stoltze: But Schoonover said he wants the city to look for efficiencies, before it cuts workers' pay and benefits.

Schoonover: We know for a fact that there's one phone line that's not in use in an entire department – save 60,000 a month. Over a year, that's close to three-quarters of a million.

Stoltze: Barbara Maynard, who represents the Coalition of L.A. City Unions, suggested other ways to economize.

Barbara Maynard: Making things more efficient on our golf courses, at our city animal shelters, in our libraries. We've really been working with the city to turn the city upside and look for every available opportunity to try to avoid cutting critical city services and putting more people on the unemployment line.

Stoltze: At the same time, union leaders acknowledged that the city faces its worst budget crisis in decades. They said they were working with the mayor on early retirements – even as they conceded that likely wouldn't be enough to compensate for the budget gap, which is aggravated by a 25 percent drop in the value of the city's two big pension funds. Pat McCosker heads the firefighters union.

Pat McCosker: We're not saying no to anything at this point. We're glad that the mayor is looking to close the budget gap in the most painless way possible, and we very badly want to work with him on that.

Stoltze: It was an unusual public recognition by a union leader that his members may be forced to give up pay raises and other benefits. The question is whether labor will sound the same tone at the bargaining table.

In addition to possible layoffs, the mayor said his upcoming budget will propose spending cuts, public-private partnerships, and fee increases.

Villaraigosa: I am not talking about raising taxes, but I am talking about full cost recovery.

Stoltze: That means paying what it actually costs to use city services. Elected officials in cities and counties across Southern California are similarly adding up the effects of the financial crisis on local government.